Debunks theory that recent upsurge was due to pent-up or festival demand, says food inflation is seasonal and will cool down
Finance Minister Nirmala Sitharaman on Friday contested the observation in certain quarters that the recent economic recovery was due to the pent-up and festival demand and would soon wither away, saying every sector had showed that the revival would sustain. She also did not agree with the view that proper recovery would have to wait till 2022-23, and said it would happen next year itself and the vaccine would aid that process.
“Things are looking up in terms of recovery. I am not going into alphabet jugglery whether it is V, or K or any other alphabet, but every sector is showing clear signs of a revival. Some would say patchy, but recovery is consistently happening over the last two months,” Sitharaman said at HT Leadership Summit. She said just the pent-up or festival demand could not explain the over Rs 1-trillion goods and services tax (GST) collection for two months.
“Yes, normally this is a season when festival demand always adds a bit more fervour to the demand, which prevails through in a year. I also see reports and I am also talking to industry leaders who are looking at capacity expansion,” she said.
She said in core sector industries — be it cement, be it iron and steel, integrated plants –all are going for capacity expansion.
“The people of India, given all challenges, have just kept going, and today that’s the reason for revival.”
To a query that private investments are weak,she said,”You are seeing expansion in capacities… it can’t be without investment in the private sector.”
“More investments (are being made) into expanding capacity , not just in one unit, but across the country. You are hearing of expansion,” Sitharaman said.
She said prevailing demand has shown up in purchasing managers’ index (PMI) in both manufacturing and services.
However, one has to wait to see if credit is also expanding.
“It is an indication that additional demand is coming in.. I don’t think it is pent up or festival-driven demand … it is likely to sustain,” Sitharaman asserted.
RBI’s monetary policy and inflation:
Sitharaman said she was not worried about inflation to the extent that there are seasonal ups and downs in prices.
“If you see food grains and edible commodities, such as fruit and vegetables and edible oils these are seasonal fluctuations. I am also happy that the inter-ministerial group has very frequently been looking at changes and taking conscious calls to fill in any supply level shortage through imports and any logistical constraints adding to supply shortage,” she said.
She said this blip in inflation, particularly in food items, will ease out. “I don’t see inflation in food items will continue.. It will have to come down,” she pointed out.
To a query that after RBI’s move to hold rates, is there more pressure on the government to go for a far more growth oriented budget, she said it is always a careful balance between monetary and fiscal policies.
“It is a real time balance that RBI and the finance ministry will have to do. It has to be a delicate well studied balance at a time when we are looking at reviving the economy at the earliest possible.. So coordination with RBI will be important and we will continue to do that,” she said.
She said one has to wait till details on vaccination come out to talk about fund allocation for vaccines.
“As of today we don’t know what will be the details which come with the vaccine…If it is going to be one dose or two doses…Whether two doses are going to be sufficient or recurrent doses will be needed,” she pointed out.
She said she needed to know the cost per dose and the cycle to decide about any number on fund allocation for vaccines.
RBI’s internal group recommendation on corporate-promoted banks:
Sitharaman said it is an RBI internal paper. “RBI hasn’t taken a position. It is not being discussed for the first time.”
She said negotiations between the government and agitating farmers are still going on and hence it will not be right for her to comment on minimum support prices (MSP).
“See MSP between 2014 and 2020, compared to similar years previously. We have proven that we have taken MSP seriously. We procure under MSP much more than what previous governments did and also gave farmers a lot more money. The MSP continues and APMCs continue. Doubt on those need not be there,” she explained.
“Many Parliamentary committees have also discussed some aspects (of farm Bills)… it is not something which is just done in a jiffy. They have gone through the grind for sometime.”
The finance minister said she is getting extreme views on the subject. Some are saying forget the number and print notes. Many are saying that she has to concentrate on capex for multiplier effect, she disclosed.
“One thing is clear, the fiscal deficit is not what was said in the budget. It is going to be higher than that,” she said.
She said the GST Council should take a call that it doesn’t decide to change rates in each of its sitting. “Increasing or reducing rates upsets calculations of the Centre and states on the revenue front,” she argued.
She said if GST rates can be tweaked once in a year like the Budget, there would be predictability. “I am sure the Council won’t hesitate to discuss this and take a call on the matter,” she said.
She said the Council is a very robust mechanism and I truly appreciate every finance minister who comes and represents its state and for keeping that spirit up.